Retirement Planning for Your 40s, 50s and 60s
It’s never too early to start getting ready for retirement. Even if you think you have plenty of time before you actually retire you should begin following a strategic plan decades before your planned retirement age. Following a retirement planning strategy will ensure that you will not need to worry about financial support during your retirement years and that you will have the resources to fund your desired lifestyle. Although ideally retirement planning should begin as soon as you begin working, during every decade you can begin improving your retirement situation.
40s: Your Working Years
If you have not taken advantage of any employer-provided retirement account contributions to your 401(k) or 403(b), now is the time to ensure you are meeting the requirements to receive these contributions. Some employers will contribute a certain percentage of your salary regardless of your own contributions, but others will match your contributions. You can contribute up to $19,000 of your own earnings for 2019.
You can also contribute to a Traditional or Roth IRA during your working years. If your income qualifies you for a Roth IRA and you anticipate being in a higher tax bracket when you withdraw funds during retirement, you might consider a Roth IRA over a traditional IRA for that year. With a Roth IRA, you will pay income tax on your contributions up front but withdraw them tax-free after you retire. Contribution limits for both types of IRAs are $6,000 for 2019.
However, these maximum limits for tax-advantaged retirement accounts should be the minimum you save for retirement, and you can make additional contributions to an investment account. Consult with a financial advisor to project the annual savings amounts you will need to meet your retirement goals, to manage your investments, or both.
Begin looking at your retirement plan projections while you still have a decade or two to increase your savings amounts if necessary. Setting up automatic deductions from your paycheck to a retirement account or investment account can help you avoid treating this money as available to spend in the present.
During your 40s, you may also have to consider any costs associated with supporting two generations: your parents and your children. Make sure you are considering both as you project the necessary expenses you will have incur over the years. You might also consider taking out a term life insurance policy to cover the risk of being unable to provide financial support to these loved ones.
50s: Your Pre-Retirement Years
When you reach age 50, begin taking advantage of the additional tax-advantaged retirement account contributions you are allowed, which are an additional $1,000 “catch up” contribution for IRAs in 2019 and an additional $6,000 for 401(k)s.
As your net worth has likely increased over the past decade, discuss with a financial planner whether you now need an estate plan that encompasses more than just a will. Do you now have the assets to fund a trust that you did not have in previous decades? Are your beneficiaries still whom you want to receive your assets?
If you are not working with a financial planner who is managing your investments, begin to shift the allocation of your assets from riskier equities toward lower-risk securities like bonds. Discuss with your planner whether you should increase your savings rate further based on your most recent retirement savings projections.
Also, consider whether you will be able to fund unexpected expenses during retirement. Decide whether to purchase long-term care insurance, which will cover personal care expenses if you cannot fully take care of yourself without help. You might also have children who are willing to provide financial or live-in support during retirement.
Finally, determine whether your employer offers any retirement benefits. Will you qualify for health insurance through your company after you retire? Will you receive benefits from a pension plan?
60s: Your Retirement Years
During your 60s, you may face the important decision of what age to retire. Are you committed to a specific date, or are you willing to work and increase your savings for a few more years if you are healthy and able?
After you retire, you can choose when to begin taking your Social Security benefits. The longer you wait to begin payments, the higher the monthly income you will receive (you will receive 8% more for each year you delay, up to age 70).
You should also consider your health insurance options. If you do not have employer-provided insurance, you can either purchase health insurance yourself or elect Medicare coverage. If you choose Medicare, there are four elements, or “parts,” of Medicare coverage. Make sure you understand the health expenses that each will cover.
As another option for either personal fulfillment or to save more for retirement, you may want to work part-time after retiring from your full-time job. If you do, make sure to delay your Social Security payments until at least your full retirement age (which depends on your year of birth, but will likely be 66 or 67), or else your payments will be reduced.
Your asset allocation should now be primarily in low-risk assets that may also provide income to supplement your own savings, such as bonds or dividend-paying equities. Consider whether you will be able to fund additional living expenses such as in-home care or living at a senior retirement community.
As you gain a better estimate of your retirement resources, consult with a financial planner to determine whether you want to make any changes to your estate plan. Do you have charitable goals you did not have previously? Would you like to leave funds to your grandchildren instead of your children or contribute to college savings accounts for them?
Finally, consider establishing a living trust to hold your assets rather than owning them in your own name. Assets in living trusts provide privacy by avoiding the probate process. You would appoint a successor trustee to manage the disbursement of assets to your heirs upon your death. This trustee can also manage your assets if you become incapacitated. Living trusts allow the successor trustee to distribute assets to your heirs more quickly than if the assets were in your own name, making the disbursement process a matter of weeks instead of months or years. Living trusts are also revocable, meaning you can transfer assets back into your own name at any time.
Regardless of your age, it is never too late or too early to begin preparing for your retirement. Because there are so many elements of retirement planning to consider and so many strategies that might optimize your financial situation, a financial planner may be able to guide you through this process, provide expert investment management, and offer you peace of mind that you might not have without professional guidance.
The team at ARQ Wealth Advisors are here to help you design a retirement plan, contact us here.